World stocks jump on Europe central bank debt plan

BANGKOK – World stock markets surged Friday, boosted by a highly anticipated European plan to lower the borrowing costs of debt laden Spain and Italy.

Markets shot higher after the European Central Bank announced Thursday it was creating a new program under which the bank will buy government bonds with maturities of one to three years. There will be no limit to the amount of purchases it can make.

European stocks were mostly higher in early trading. Britain’s FTSE 100 was marginally down at 5,774.73. But Germany’s DAX gained 0.8 per cent to 7,223.03 and France’s CAC-40 added 1.3 per cent to 3,554.49.

Wall Street appeared headed for yet more gains, a day after the Standard & Poor’s 500 index soared to its highest level since January 2008, and the Dow Jones industrial average hit its highest mark since December 2007.

The ECB program — its most ambitious yet in efforts to halt Europe’s financial crisis — is intended to keep the short-term borrowing rates of countries such as Italy and Spain at manageable levels, giving them time to enact debt reduction measures and economic reforms.

Large-scale purchases of short-term government bonds by the ECB are expected to drive prices up while pushing down their interest rates, making it less expensive for financially strapped countries to borrow.

“Hong Kong market is in a very good mood today because of the rally from the Wall Street which is triggered by the ECB new unlimited bond purchasing program announced last night,” said Jackson Wong, vice-president of Tanrich Securities in Hong Kong.

“Now investors are getting more confidence that the ECB might be able to handle the current situation again. The euro went up above $1.26 and the ten-year bond yield of Italy and Spain went down significantly.”

Spain’s interest rate on its 10-year bond was down 0.3 percentage points at 6.12 per cent after the ECB announcement. Italy’s 10-year rate was down 0.1 percentage points at 5.33 per cent.

And in an encouraging sign for the American job market, a report from the payroll processor ADP said Thursday that businesses added 201,000 jobs last month, the most reported by the survey since March.

Separately, the Labor Department said the number of people applying for unemployment benefits fell by 12,000 last week to 365,000. That figure won’t affect the August jobs report, due out Friday, but could be a sign of better hiring this month.